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It seems like with each passing year, there has been an increase in national-brand “pop-up” shops appearing in shopping centers for the holiday season. Pop-up shops can be a great way to add pizzazz to your center, but they do pose some risks if you don’t understand the differences between these temporary tenants and long-term tenants, and prepare for them. Here are the top risks that you might run into—and how you can protect yourself against them.
If you’re like many shopping center owners, some of your tenants might have cotenancy rights. That is, you’re obligated to keep a certain space or spaces in the center leased to stores the tenant has specified in the lease. If you don’t, the tenant might have a right to pay lower rent, or even terminate its lease. But in some cases, owners have negotiated mutual termination rights if a cotenancy clause is triggered because a specified tenant has stopped operating.
If you’re working with a prospective lender, buyer, or investor for your office building or shopping center, the last thing you want is a surprise tenant issue that can hold up or even kill the deal. Any party preparing to spend money will want to know that it won’t be blindsided later with tenant claims that it’ll be responsible for resolving.
It seems unfair, but in some situations where a tenant has breached its lease and is no longer paying rent, the owner must try to mitigate its damages by finding another tenant who will pay rent. But if it’s not spelled out for you, how will you know if your efforts to find a new tenant are enough? A Connecticut case showed that an online ad placed by an owner for vacant space was insufficient to qualify as mitigating its damages.
Your lease with a tenant might have provisions that aren’t typical but were negotiated to serve a specific purpose. While provisions that are tailored to you and your tenant’s deal can certainly work in your favor, unusual lease provisions can leave you open to liability in some instances. For example, they can change the standard “duty of care” you would have to protect your tenant and its employees. That loophole can leave you open to litigation. That was the case for an Iowa owner whose duty of care stemmed from 'unusual' lease provisions.
Q: I defaulted on the mortgage loan for my office building because a major tenant didn’t pay its rent, leaving me short of money to make a loan payment. It seems only fair that the delinquent tenant should have to reimburse me for the loan-related damages I had to pay to the lender. But my lease doesn’t address recovering loan-related damages from a delinquent tenant. Have I missed the chance for reimbursement?
The new trend toward holding commercial landlords liable for the illegal activities of their tenants is extremely disconcerting. It requires landlords to take unprecedented measures and exert significant efforts to protect themselves from liability exposure to court-awarded damages for their tenant’s illegal activities. And lawsuits brought by luxury brands against landlords seem to be ramping up. So how can you protect yourself from being embroiled in the fight against counterfeiters?
A Pennsylvania case should serve as a reminder that owners can't deny tenants' access to their space if restrictions aren't provided for in the lease. There, a restaurant tenant signed a lease for space in a food court area of an office building.
Technological advances that provide security and convenience for users are being made in leaps and bounds, and even the traditional commercial real estate industry is benefitting—most recently, from digital signature software. Traditional methods of executing leases and related documents—that is, ink-on-paper signatures—leave the door open for potential misunderstandings and even fraud.
Q: The triple-net lease I signed with a stand-alone tenant at my shopping center provides that the tenant will pay its pro rata share of management fees and maintenance for the common areas, and that it will be responsible for the maintenance tasks for its own area. I recently hired a property management company for the center and I'd like to use it to maintain the stand-alone tenant as well and charge the tenant for those services.
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